Source · Select Committees · Public Accounts Committee
Recommendation 9
9
It also transpired, when we questioned the Department about the size of the tax gap...
Conclusion
It also transpired, when we questioned the Department about the size of the tax gap in the construction industry, that HMRC does not assess and publish the relative size of the tax gap across different industries. The construction industry has traditionally had quite high levels of non-compliance. HMRC introduced the Construction Industry Scheme to tackle the risks in the construction sector but it has not assessed the tax gap in the sector since.19 Notwithstanding the lack of a tax gap estimate for different industries, HMRC has intelligence on the levels of non-compliance in different sectors, such as in the case of buy-to-let landlords.20 HMRC uses such intelligence to inform the targeting of its campaigns, where it contacts large numbers of taxpayers in a specific sector and invites them to revise their tax filings. A number of taxpayers that do not take action will then be subject to HMRC investigations.21 The completeness of the tax gap
Government Response
Not Addressed
HM Government
Not Addressed
2. 1 The government disagrees with the Committee’s recommendation. 2. 2 In Measuring tax gaps 2020 edition, the department provided tax gap estimates by tax type, taxpayer group and behaviour. As tax gap models are built to estimate the total gaps by tax type, data and modelling techniques do not allow for some forms of subgroup analysis to be achieved comprehensively – such as analysis by industry sector. 2.3 It may be possible to estimate some components of the tax gap by sector, for example for estimates based on data from the random enquiry programme. In this instance, data from multiple years would need to be pooled together to provide sufficient cases for subgroup analysis, which would mean the department could not present a time-series in this analysis. To improve precision for single-year estimates, additional resource would be needed for the random enquiry programme to increase the number of cases. This would also increase the burden on compliant customers who are selected for enquiry and would entail an opportunity cost as an equivalent number of risk-based enquiries would yield more revenue. In the absence of sufficient data, breaking down the total tax gap by industry sector would entail a high level of assumption and would result in extremely uncertain estimates that would not be in keeping with the level of precision offered by the statistics presented elsewhere in the report. 2.4 The department recognises that from time-to-time risks will emerge in specific industries, regions or tax regimes, and the department will seek to provide tax gap estimates as to the magnitude of these where it is feasible. For example, in Measuring tax gaps, the oils tax gap for Northern Ireland is disaggregated from the gap for Great Britain, which demonstrates the difference in the size of the illicit diesel market between these regions. 2.5 The department will continue to keep its tax gap estimates under review and will prioritise development where most value can be provided to users of its statistics.